There's a common question on the minds of many today who follow economic
news: how did the unemployment rate decline by 0.4%, when only 36,000 jobs
were created? I explained this in a fair amount of detail earlier. In short,
it's complicated. But one contributing factor could be differences in the
way these two statistics are measured.

The Bureau of Labor Statistics relies on two separate surveys for its
monthly jobs report. The "Household Survey" provides the unemployment rate
and the "Establishment Survey" provides the number of jobs added or lost
overall and in each industry. For the past two months, the Household Survey
had a relatively positive result, which caused the rate to decline a whopping
0.8%. Meanwhile, the Establishment Survey has been consistently lukewarm,
showing just 157,000 jobs added.

Of course, this makes no sense, because for the unemployment rate to
decline by 0.8%, you would need to add 1.2 million jobs, with all other
variables remaining unchanged. For the past few months, other variables
did change, however. The workforce shrunk as some unemployed Americans
gave up looking for work. In January, the population also declined, which
had an effect. Other workers went from being technically unemployed to
being labeled marginally attached, because they weren't looking work, but
still wanted a job.

But that doesn't provide the full explanation. According to the Household
Survey, employment increased by 589,000 workers in January, while the Establishment
Survey says it rose by just 36,000.* For December the difference was a
little smaller -- 297,000 jobs added for the Household Survey and 121,000
for the Establishment Survey. What's going on here?

It's pretty hard to know for sure. But maybe we should start with how
the BLS explains the ways in which these two surveys differ. We'll consider
each:

The household survey includes people on unpaid leave among
the employed. The establishment survey does not.

There's little reason to believe that this has had a significant effect
recently. There hasn't been any sociological shock that would require many
workers to take unpaid leave to inflate the Household Survey's numbers.

The household survey is limited to workers 16 years of age
and older. The establishment survey is not limited by age.

This one can't explain it either. If anything, this would inflate the Establishment
Survey's numbers, since it could include more employed workers under the
age of 16. We're seeing better performance in the Household Survey instead.

The household survey has no duplication of individuals, because
individuals are counted only once, even if they hold more than one job.
In the establishment survey, employees working at more than one job and
thus appearing on more than one payroll are counted separately for each
appearance.

Again, this difference could only inflate the Establishment Survey, as
it could double-count employment. So this can't explain any disparity either.

The household survey includes agricultural workers, the self-employed,
unpaid family workers, and private household workers among the employed.
These groups are excluded from the establishment survey.

This explanation might help to explain the differences. As Americans struggle
to find firms hiring, more may be turning to self-employment or taking
on the role of unpaid or private family/household workers. This implies
that the Establishment Survey is underestimating employment, because it
doesn't include those groups of workers.

Of course, you could just as easily argue that the Establishment Survey
is more accurate, because the Household Survey is overestimating workers.
For example, if 1000 unemployed people who were laid off in 2009 decide
stop looking for work, rely on their spouses' income, and stay at home
with the kids, did the economy just add 1000 jobs? It sure doesn't seem
like it.

In fact, BLS provides the data for the categories of farm workers, self-employed,
unpaid family workers, and private household workers. Unfortunately, it
doesn't help much to reconcile the employment numbers for the Household
and Establishment Surveys. In December, the Household Survey goes from
predicting 176,000 more new jobs to predicting 245,000. Clearly, this is
no silver bullet.Unfortunately the January change canno be tabulated, as
BLS does not provide consistent data from December to January

These two surveys have suggested different rates of job growth since
the recovery began. Here's the job growth since January 2010 for each survey
and the corrected Establishment Survey, which includes the four categories
of workers that the Household Survey includes:

And really, this is nothing new. These two surveys have diverged for
some time. In fact, when you add the jobs that the Establishment survey
overlooks to its total, the surveys' estimates have been moving close together
since 2000.

So do these two surveys provide somewhat different statistics? They
do. This is part of what contributed to the divergence we've been seeing
over the past few months.

Differences in surveying do not account for the entire big decline in
the unemployment rate over the past two months, but they do count for the
difference in January. In December, the change was mostly to the labor
market shrinking as more Americans stopped looking for work. That's something
the Establishment Survey doesn't track, so there's no conflict between
the two data sets regarding that statistic.

*This post was revised slightly to reflect a correction made to this
post. See this other post for more
detail. The January discrepancy was actually very large, and responsible
for the unemployment rate decline.